______________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________
TO _______________.
EUROGAS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Utah 33-1381-D 87-0427676
---------------------------- --------------------- ---------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation Identification No.)
942 East 7145 South, Suite 101A Midvale, Utah 84047
----------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 255-0862
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $0.001 par value 100,736,979
-------------------------------- ---------------------------------
(Title of Class) (Number of Shares Outstanding at
March 31, 2000)
<PAGE>
______________________________________________________________________________
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION........................................... 2
Item 1. Financial Statements........................................ F1-F12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 3
Recent Developments......................................... 3
Outlook..................................................... 3
Results of Operations....................................... 4
Capital and Liquidity....................................... 5
Inflation................................................... 6
Factors That May Affect Future Results...................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 7
PART II - OTHER INFORMATION.............................................. 8
Item 1. Legal Proceedings.............................................. 8
Item 2. Changes in Securities and Use of Proceeds...................... 10
Recent Sales of Unregistered Securities..................... 10
Item 6. Exhibits and Reports on Form 8-K............................... 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents . . . . . . . . . . . $ 1,427,564 $ 1,047,141
Investment in securities available-for-sale . . 317,084 317,084
Trade accounts receivable . . . . . . . . . . . 1,556,769 907,269
Value added tax receivables . . . . . . . . . . 1,080,017 1,057,628
Receivable from joint venture partners. . . . . 1,191,744 1,217,149
Other receivables . . . . . . . . . . . . . . . 112,208 74,696
Other current assets. . . . . . . . . . . . . . 530,140 236,044
------------ ------------
Total Current Assets . . . . . . . . . . . . 6,215,526 4,857,011
Property and Equipment - Full Cost Accounting
Oil and gas properties subject to amortization. 20,818,205 21,553,571
Oil and gas properties not subject to
amortization . . . . . . . . . . . . . . . . . 26,865,731 26,862,072
Other mineral interests . . . . . . . . . . . . 755,539 755,539
Other property and equipment. . . . . . . . . . 1,063,990 1,052,098
------------ ------------
Total Property and Equipment . . . . . . . . 49,503,465 50,223,280
Less: accumulated depletion depreciation
and amortization. . . . . . . . . . . . . . . (2,456,521) (2,060,386)
------------ ------------
Net Property and Equipment . . . . . . . . . 47,046,944 48,162,894
------------ ------------
Other Investments at Cost . . . . . . . . . . . . . 658,857 358,857
Long-Term Notes Receivable. . . . . . . . . . . . . 500,000 500,000
Other Assets. . . . . . . . . . . . . . . . . . . . 59,747 89,816
------------ ------------
Total Assets. . . . . . . . . . . . . . . . . . . . $ 54,481,074 $ 53,968,578
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable. . . . . . . . . . . . . . . . $ 4,201,358 $ 4,289,836
Accrued liabilities . . . . . . . . . . . . . . 4,277,369 4,251,703
Accrued income taxes . . . . . . . . . . . . . 685,817 708,931
Accrued settlement obligation . . . . . . . . . 4,400,000 4,400,000
Notes payable . . . . . . . . . . . . . . . . . 3,301,961 4,155,492
Notes payable to related parties . . . . . . . 1,200,669 1,554,367
------------ ------------
Total Current Liabilities. . . . . . . . . . 18,067,174 19,360,329
------------ ------------
Minority Interest . . . . . . . . . . . . . . . . . 4,093,820 3,824,903
------------ ------------
Stockholders' Equity
Preferred stock, $.001 par value; 3,661,968
shares authorized; issued and outstanding:
March 31, 2000 - 2,392,228 shares, issued and
outstanding ; December 31, 1999 - 2,394,028
shares; 1999 liquidation preference: $778,041. 2,392 2,394
Common stock, $.001 par value; 325,000,000
shares authorized; issued and outstanding:
March 31, 2000 - 100,736,979 shares,
December 31, 1999 - 86,835,838 shares. . . . . 100,737 86,836
Additional paid-in capital. . . . . . . . . . . 109,587,529 103,873,514
Accumulated deficit . . . . . . . . . . . . . . (73,302,929) (69,313,457)
Accumulated other comprehensive loss. . . . . . (4,067,649) (3,865,941)
------------ ------------
Total Stockholders' Equity . . . . . . . . . 32,320,080 30,783,346
------------ ------------
Total Liabilities and Stockholders' Equity. . . . . $ 54,481,074 $ 53,968,578
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
Oil and Gas Sales. . . . . . . . . . . . . . . . . . . $ 1,783,805 $ 740,894
------------ -----------
Costs and Operating Expenses
Oil and gas production. . . . . . . . . . . . . . . 656,110 172,144
Depreciation depletion and amortization . . . . . . 415,352 295,717
General and administrative. . . . . . . . . . . . . 1,662,996 2,481,064
------------ -----------
Total Costs and Operating Expenses . . . . . . . 2,734,458 2,948,925
------------ -----------
Other Income (Expense)
Other income. . . . . . . . . . . . . . . . . . . . 13,023 -
Interest income . . . . . . . . . . . . . . . . . . 26,966 69,597
Interest expense. . . . . . . . . . . . . . . . . . (2,782,871) (123,264)
Foreign exchange net gains (losses) . . . . . . . . 47,046 65,628
Realized loss on sale of securities
and equipment. . . . . . . . . . . . . . . . . . . (4,407) (82,350)
Minority interest in income consolidated
subsidiary . . . . . . . . . . . . . . . . . . . . (300,227) (92,711)
------------ -----------
Total Other Income (Expense) . . . . . . . . . . (3,000,470) (163,100)
------------ -----------
Net Loss . . . . . . . . . . . . . . . . . . . . . . . (3,951,123) (2,371,131)
Preferred Dividends . . . . . . . . . . . . . . . . . (38,349) (42,217)
------------ -----------
Loss Applicable to Common Shares . . . . . . . . . . . $ (3,989,472) $(2,413,348)
============ ===========
Basic and Diluted Loss per Common Share. . . . . . . . $ (0.04) $ (0.03)
============ ===========
Weighted Average Number of Common Shares Used
In Per Share Calculation. . . . . . . . . . . . . . . 92,013,205 78,920,472
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss. . . . . . . . . . . . . . . . . . . . . $ (3,951,123) $ (2,371,131)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation depletion and amortization. . . . 415,352 295,717
Minority interest in income of subsidiary. . . 300,227 92,711
Interest expense from beneficial conversion
feature of debentures issued. . . . . . . . . 771,429 -
Debentures issued for expense paid by
shareholder . . . . . . . . . . . . . . . . . 986,376 -
Compensation related to detachable warrants. . 1,898,138 -
Loss on sale of securities available-for-sale. - 37,694
Exchange gain. . . . . . . . . . . . . . . . . (47,046) (65,628)
Changes in assets and liabilities, net of assets
acquired:
Trade receivables. . . . . . . . . . . . . . . (69,581) (111,472)
Other receivables. . . . . . . . . . . . . . . (664,488) (171,615)
Other assets . . . . . . . . . . . . . . . . . (265,105) 50,891
Accounts payable . . . . . . . . . . . . . . . (56,272) 50,203
Accrued liabilities. . . . . . . . . . . . . . 159,520 (28,060)
------------ ------------
Net Cash Used In Operating Activities . . . (522,573) (2,220,690)
------------ ------------
Cash Flows From Investing Activities
Purchases of mineral interests, property and
equipment. . . . . . . . . . . . . . . . . . . . (1,469,480) (1,031,308)
Proceeds from payment of related party receivable - 200,000
Purchase of other investments at cost . . . . . . (300,000) -
Issuance of receivable to related party . . . . . - (150,000)
Proceeds from sale of securities property and
equipment. . . . . . . . . . . . . . . . . . . . 1,869,092 60,291
Investment in securities available-for-sale . . . - (56,434)
------------ ------------
Net Cash Used In Investing Activities . . . 99,612 (977,451)
------------ ------------
Cash Flows From Financing Activities
Principal payments on notes payable . . . . . . . (825,852) (2,932,004)
Proceeds from issuance of preferred stock,
net of offering costs. . . . . . . . . . . . . . - 1,850,000
Proceeds from issuance of debentures. . . . . . . 1,591,336 -
------------ ------------
Net Cash Used In Financing Activities . . . 765,484 (1,082,004)
------------ ------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents. . . . . . . . . . . . . . . . . . 37,900 (197,126)
------------ ------------
Net Decrease In Cash and Cash Equivalents. . . . . . 380,423 (4,477,271)
Cash and Equivalents at Beginning of Period. . . . . 1,047,141 7,489,510
------------ ------------
Cash and Equivalents at End of Period. . . . . . . . $ 1,427,564 $ 3,012,239
============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest. . . . . . . . . . . . . . $ 35,196 $ 50,009
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
Supplemental Disclosure of Noncash Investing and Financing Activities
During the three months ended March 1999 EuroGas
accrued preferred dividends of $42,216. Preferred
shareholders converted 3,170 shares of 1998 Series B
Preferred stock together with $18,049 of accrued
preferred dividends into 2,856,259 common shares at
approximately $1.12 per common share.
During the three months ended March 31, 2000, EuroGas
converted accrued debt in the amount of $87,216 to
debentures. Debentures in the amount of $3,000,000
were converted into 8,571,428 shares of common stock
or $0.35 per share. Preferred shareholders converted
1,800 shares of Series C preferred stock together with
$2,599 of accrued preferred dividends into 5,329,713
common shares at a weighted-average price of $0.54 per
common share.
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Condensed Financial Statements - The accompanying
unaudited condensed consolidated financial statements
include the accounts of EuroGas, Inc. and its
subsidiaries ("EuroGas"). These financial statements
are condensed and, therefore, do not include all
disclosures normally required by generally accepted
accounting principles. These statements should be
read in conjunction with EuroGas' most recent annual
financial statements included in the Company's report
on Form 10-K for the year ended December 31, 1999. In
particular, EuroGas' significant accounting principles
were presented as Note 1 to the Consolidated Financial
Statements in that Report. In the opinion of
management, all adjustments necessary for a fair
presentation have been included in the accompanying
condensed financial statements and consist of only
normal recurring adjustments. The results of
operations presented in the accompanying condensed
financial statements are not necessarily indicative of
the results that may be expected for the full year
ending December 31, 1999.
Business Condition - EuroGas and its subsidiaries have
accumulated deficits of $69,313,457 since their
inception in 1995 through December 31, 1999 and
$74,551,000 as of March 31, 2000. They have had
losses from operations and negative cash flows from
operating activities during each of the three years in
the period ended December 31, 1999 and the three month
period ended March 31, 2000. These conditions raise
substantial doubt regarding the Company's ability to
continue as a going concern. Although the Company had
positive working capital and stockholders' equity at
December 31, 1998 and had positive stockholders'
equity at December 31, 1999, realization of the
investment in properties and equipment is dependent on
EuroGas obtaining financing for the exploration,
development and production of those properties. If
exploration of unproved properties is unsuccessful,
all or a portion of recorded amount of those
properties will be recognized as impairment losses.
Further, EuroGas is dependent on improvement in oil
and gas prices in order to establish profitable
operations from oil and gas production. As in the
past, management plans to finance operations and
acquisitions through issuance of additional equity
securities, the realization of which is not assured.
F-5
<PAGE>
NOTE 2--PROPERTY ACQUISITIONS
Teton Petroleum Company ("Teton"), through Goltech
petroleum, LLC ("Goltech"), owns a 71% interest in
Goloil, a Russian oil and gas company. On April 5,
2000, EuroGas entered into an agreement with Teton for
the acquisition of Teton and a 35% interest in Goltech
by September 1, 2000. If the acquisition is completed
under the terms of the agreement by the required
closing date, EuroGas would purchase Teton and the
interest in Goltech in exchange for $2,300,000, the
issuance of 13,621,744 shares of common stock and the
issuance of options, warrants and other rights to
purchase 2,599,249 shares of common stock at $0.35 for
1 year. In addition, EuroGas would be obligated under
the terms of the agreement to lend Goltech up to
$4,000,000 under a credit facility which would bear
interest at 15% per annum on the amount loaned.
EuroGas will place additional common shares with a
market value of $4,000,000 into an escrow account to
ensure EuroGas' ability to provide the cash payments
and the credit facility. EuroGas has paid a deposit of
$300,000 as consideration for the agreement and made
an initial loan in the amount of $500,000 and placed a
promissory note from an
individual in the amount of $500,000 and securities of
the individual into an escrow account to ensure the
ability of EuroGas to provide the remainder of the
initial $1,000,000 loan. During a due diligence
period expected to end in late May 2000,
the agreement can be
terminated without payment by either party except for
the loss of the deposit paid by EuroGas. In the event
either Teton or EuroGas fails to perform under the
terms of the agreement after the end of the due
diligence period, that
party will be obligated to pay $1,000,000 in
liquidation damages.
NOTE 3 -- NOTES PAYABLE
During the first quarter of 2000 EuroGas completed the
issuance of two-year 10.5% convertible debentures in
the amount of $3,000,000 in exchange for cash proceeds
of $1,591,336, the conversion of prior outstanding
EuroGas debt into debentures in the amount of
$422,288 and proceeds in the form of payments to creditors
on behalf of EuroGas by a shareholder in the amount of
$986,376. The debentures are convertible into common
shares at $0.35 per share, which represents a discount
of 20% from quoted market values on the date of the
issuance. Upon conversion the holders also receive
warrants to purchase 17,142,858 common shares at $0.35
per share. The convertibility of the debentures at a
discount, and the detachable warrants issued below
market on the date of issuance, constitute a
beneficial conversion feature of the offering. The
Company will record the three instruments at their
relative fair values on the date of issuance and will
amortize the resulting debt discounts as interest
expense in the amount of $2,912,109 over the
three-month life of the debentures. The debentures
were subsequently converted at the election of the
holders on March 30, 2000 into 8,571,428 common
shares. Subsequently, on April 14, 2000 EuroGas issued
11,428,572 commons hares upon the exercise of
11,428,572 warrants in exchange for reduction of notes
payable in the amount of $4,000,000, or $0.35 per
share.
F-6
<PAGE>
Current notes payable were reduced during the three
months ended March 31, 2000 by approximately $853,531
which primarily consisted of payments to reduce notes
payable to a bank in Canada.
Notes payable to related party were reduced during the
three months ended March 31, 2000 by approximately
$353,698 which primarily consisted of a conversion of
notes to debentures.
NOTE 3 - STOCKHOLDERS' EQUITY
During the January 2000, all 1,800 outstanding shares
of 1999 Series C Convertible Preferred Stock were
converted into 5,329,713 common shares at a
weighted-average price of $0.34 per share. In
connection with the conversion, 63,261 common shares
were issued for $21,599 in accrued dividends on the
converted 1999 Series shares at a weighted-average
price of $0.54 per common share.
At March 31, 2000, the following preferred shares were
outstanding:
Series 1995 Preferred shares; 2,391,968 shares
outstanding; $0.05 annual dividend rate per share,
$119,598 annually; $453,363 liquidation preference
1997 Series A Preferred shares; 260 shares
outstanding; $60.00 annual dividend rate per share,
$15,600 annually; $324,678 liquidation preference
NOTE 4 - COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Loss Applicable to Common Shares . . . . . . . . $ (3,989,472) $ (2,413,348)
Other Comprehensive Loss . . . . . . . . . . . .
Unrealized holding losses on securities
available-for-sale. . . . . . . . . . . . . . . - (470,786)
Less: Reclassification adjustment for losses
realized in net loss . . . . . . . . . . . - 82,350
Net change in cumulative foreign currency
translation adjustment. . . . . . . . . . . . . (201,708) (1,226,435)
------------ ------------
Total Other Comprehensive Loss. . . . . . . (201,708) (1,614,871)
Comprehensive Loss . . . . . . . . . . . . . . . $ (4,191,180) $ (4,028,219)
============ ============
Accumulated other comprehensive loss consisted of the
following at March 31, 2000:
Unrealized loss on securities available-for-sale. . . . . . $ (1,068,853)
Cumulative foreign currency translation adjustment. . . . . (2,998,796)
------------
Accumulated Other Comprehensive Loss. . . . . . . . . . . . $ (4,067,649)
============
F-7
<PAGE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
An assertion has been made against EuroGas by alleged
holders of registration rights that EuroGas failed to
file a registration statement for certain shares and
warrants. On March 16, 2000, a default judgement in
the amount of $19,773,113 was entered against EuroGas
by the United States District Court District of Utah.
Central Division due to lack of response by EuroGas.
EuroGas has retained counsel and estimates its
liability will be $3,400,000 and has recognized a
charge against operations for the year ended December
31, 1999 in this amount.
EuroGas' subsidiary, GlobeGas BV, has applied for a
reduction in an income tax liability in the
Netherlands of an amount equivalent to approximately
$653,385 at March 31, 2000. The tax arose from the
sale of equipment at a profit by the former owner of
Globegas to a EuroGas Polish subsidiary. EuroGas'
position is that the gain on the sale should not have
been taxable to GlobeGas. The liability will continue
to be reflected in EuroGas' financial statements until
the proposed reduction is accepted by the Netherlands'
taxing authorities.
During January 2000, EuroGas entered into an agreement
with Slovgold GmBH, a related party, to conduct a
six-well pilot program in South Wales to test for
coaled methane gas. Under the terms of the agreement,
EuroGas will cover the costs for the pilot program and
the first stage of any subsequent development program
in exchange for 40% of the cash flow until payout.
EuroGas interest will be reduced to 25% after the
payout point is reached. Slovgold GmBH is affiliated
with a director of EuroGas.
A bankruptcy trustee appointed in the McKenzie
Bankruptcy case has asserted a claim to the proceeds
that EuroGas would receive from an agreement with
Texaco during 1997 relating to the exploitation of the
Pol-Tex methane gas concession in Poland. The
Trustee's claim is apparently based upon the theory
that EuroGas paid inadequate consideration for its
acquisition of Globegas (which indirectly controlled
the Pol-Tex concession) from persons who were acting
as nominees for the McKenzie's, or in fact may be
operating as a nominee for the McKenzie's, and
therefore, the creditors of the estate are the true
owners of the proceeds received or to be received from
the development of the Pol-Tex concession. EuroGas is
vigorously defending against the claim. EuroGas
believes that the claim is without merit based on the
fact that a condition of a prior settlement with the
principal creditor of the estate bars any such claim,
that the trustee over the estate has no jurisdiction
over Pol-Tex Methane, a Polish corporation, or its
interests held in Poland, that EuroGas paid
substantial consideration for Globegas, and that there
is no evidence that the creditors invested any money
in the Pol-Tex concession.
F-8
<PAGE>
In October 1999, the Trustee filed a Motion for Leave
to Amend and Supplement Pleadings and Join Additional
Parties in this action and in adversary proceeding
97-4155 (described below) in which he is seeking to
add new parties and assert additional causes of action
against EuroGas and the other defendants in this
action. These new causes of action include claims for
damages based on fraud, conversion, breach of
fiduciary duties, concealment and perjury. In January
2000, that motion was approved by the Bankruptcy Court.
In July 1999, the above mentioned trustee filed
another suit in the same bankruptcy cases seeking
damages in excess of $170,000 for the defendants'
alleged violation of an agreement with the trustee
which allowed the Texaco agreement to proceed. EuroGas
disputes the allegations and has filed a motion to
dismiss or alternately, to abate this suit which
motion is currently pending before the court.
During 1997, a shareholder, who is also the principal
creditor in the above claim, asserted a claim against
EuroGas based upon an alleged breach of the
settlement agreement between the shareholder and
EuroGas as a result of EuroGas' failure to file and
obtain the effectiveness of a registration statement
for the resale by the shareholder of 100,000 shares
delivered to the shareholder in connection with the
settlement. In addition, the shareholder's parent
company entered a claim for failure to register the
resale of the shares subject to its option to purchase
up to 2,000,000 common shares of EuroGas. EuroGas has
denied any liability and has filed a counterclaim
against the shareholder and its parent company for
breach of contract concerning their activities with
the bankruptcy trustee.
In early December 1999, EuroGas signed a settlement
agreement with Kukui, the Bishop Estate and the
bankruptcy Trustee, which, if fully performed, would
resolve all claims made by Kukui and the bankruptcy
Trustee in the aforementioned litigation. That
settlement, in part, requires EuroGas to pay $900,000
over the next 12 months and issue 100,000 shares of
registered common stock to the Bishop Estate by June
30, 2000. Subsequently, however, the Trustee declared
that certain conditions precedent set forth in the
settlement agreement have not been met and the Trustee
does not intend to seek bankruptcy court approval of
the agreement. EuroGas is now evaluating what effect
this has on the agreement. In the event the settlement
agreement does not resolve the foregoing litigation,
EuroGas intends to vigorously defend the litigation.
Pursuant to the settlement, EuroGas has made the
monthly payments to Kukui and has executed all
pleadings required to be submitted to the Federal
District Court in Utah.
F-9
<PAGE>
In October 1999, an action was filed against EuroGas
which asserts that EuroGas breached an agreement to
seek registration of certain restricted and
unregistered common shares issued to the plaintiffs in
connection with EuroGas' acquisition of its interest
in Beaver River Resources, Ltd. The action seeks
rescission of the agreement, or in the alternative,
damages, and includes claims for costs, attorneys'
fees and interest. EuroGas has filed an answer
denying the allegations contained in the lawsuit.
During March of 1998, EuroGas was notified there may
be certain title problems related to an area of mutual
interest to be explored and developed by the
Nafta/Danube joint venture in Slovakia. The problem
area is outside of the Trebisov area where EuroGas
has drilled six wells and which is unaffected by the
claim. The disputed area is located in the southern
portion of the property covered by the designations
contained in the Nafta/Danube joint venture agreements
and was subject to a competing claim of ownership by a
private Slovak company. EuroGas' expansion beyond the
Trebisov was limited by the extent the Nafta/Danube
joint venture did not have exploration rights as
previously contemplated. During the second quarter of
1998, EuroGas acquired a 90% interest in Maseva Gas,
s.r.o. ("Maseva") which holds the rights to the
exploration territory known as "Kralovsky Chlmec"and
includes the disputed area located to the south of
Trebisov. The division of the working interest for
this territory is 67.5% for EuroGas (rather than the
50% split which governs the Trebisov area), provided
that EuroGas carries the cost of drilling the first
two wells in the Maseva concession.
EuroGas has notified the former shareholders of
Danube of a potential claim against them by reason of
this recent problem. EuroGas believes the owners of
Danube knew, or should have known, about the problem
prior to the acquisition of Danube and made no
disclosure concerning the problem. EuroGas has made a
claim against the former Danube shareholders for
indemnity to the extent EuroGas suffers any damage by
reason of the potential title claim. It is uncertain
whether EuroGas will be able to recover from the
former Danube shareholders.
As a result of the title problems with the
Nafta/Danube property, a dispute has arisen with the
joint venture partner, Nafta Gbely a.s. ("Nafta").
EuroGas has asserted a claim for misrepresentation of
the property asset at the time of its acquisition and
has made demand on Nafta in an amount equal to
EuroGas' investment in the property. Efforts to bring
the property to production were suspended pending
resolution of the claims. EuroGas has received
indications the Slovak government may seek to resolve
the dispute. Recently, the government completed its
nationalization of Nafta; although discussions are
scheduled between EuroGas and Nafta, resolution of
this matter is not assured.
F-10
<PAGE>
During October 1997 EuroGas received additional
concession rights from the Polish Ministry of
Environmental Protection of Natural Resources and
Forestry to explore and potentially develop a 111
square kilometer coal bed methane concession. The
concession agreement requires expenditure of $40,000
per year pending completion of a feasibility study and
negotiations with third parties for the eventual
purchase of natural gas.
In October 1997, EuroGas completed an agreement on a
50/50 cost basis for appraisal and development
activities for an area located in the Carpathian
Flysch and tectonic Fordeep areas of Poland. The
agreement contemplates a total expenditure by EuroGas
of $15 million over a three- year period. EuroGas does
not presently have the assets necessary to meet this
obligation.
In March 1998, EuroGas acquired a 53% interest in
RimaMuran s.r.o. whose principal asset is a minority
interest in a talc deposit in eastern Slovakia.
RimaMuran will have an obligation to fund 33 to 39% of
the projected $12,000,000 capital cost requirements
over the next two and one-half years. RimaMuran does
not have the assets necessary to meet this obligation,
and it is anticipated that the necessary funding will
need to be provided by EuroGas. To date, EuroGas has
invested $1,433,651 in the RimaMuran project.
During February 1998, EuroGas formed a consortium with
a large United Kingdom power producer and with a
German Utility company to develop a power generation
project in Zielona Gora, Western Poland. EuroGas
anticipates the total investment required to develop
the project will approximate $150 Million. EuroGas
will hold a 12.5% share interest in the joint venture
created by the consortium and will be required to pay
approximately 7.5%, or $11,250,000 of the estimated
project cost. EuroGas does not presently have the
assets necessary to meet this obligation.
During 1998, EuroGas entered into six agreements which
grant rights to jointly explore prospects within the
Ukraine. The agreements commit EuroGas to form joint
ventures and joint companies and use the partners'
concession agreements in exploiting the potential
standard oil and gas, as well as coal-bed methane gas
reserves. The potential reserves in the Ukraine have
not been independently verified.
During April 1999, EuroGas entered into a three-year
employment contract with its new chief executive
officer. The contract provides for annual salary of
$400,000 plus living and other allowances of $28,200.
In addition, options to purchase 1,000,000 shares of
EuroGas common stock at $0.95 per share were granted
in connection with the employment contract. The
options vest on January 1, 2000, and expire in April
2009.
F-11
<PAGE>
The Company leases office facilities from various
lessors in the United States, Poland, Ukraine, the
Netherlands, and the United Kingdom. Rent expenses for
the years ended December 31, 1999, 1998 and 1997 were
$517,354, $290,991, and $178,733, respectively. Annual
commitments for future minimum rental payments
required under the leases as of December 31, 1999 were
as follows:
Lease
Year Ending December 31: Payments
2000 $ 154,452
2001 154,452
2002 104,814
----------
Total $ 413,718
==========
F-12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company is engaged primarily in the acquisition of rights to explore for
and exploit oil, natural gas, coal bed methane gas and mineral mining. The
Company has also extended its business into co-generation (power and heat)
projects. The Company has acquired interests in a number of large
exploration concessions, for oil, natural gas and coal bed methane gas, and
is in various stages of identifying industry partners, farming out
exploration rights, undertaking exploration drilling, and seeking to develop
production. The Company currently has several projects in various stages of
development, including a coal bed methane gas project in Poland, a natural
gas project and several additional undeveloped concession areas in Slovakia,
a natural gas project in the Sakha Republic (a member of the Russian
Federation located in eastern Siberia) and an interest in a talc deposit in
Slovakia. The Company has at least seven joint venture projects in the
Ukraine to explore for and exploit oil, natural gas and coal bed methane gas
with various Ukrainian State and private companies. The Company has also
created a consortium with the largest power generation company in Great
Britain, and with a large utility company in Germany, to develop a
co-generation power project in Western Poland.
The Company has also acquired holdings in several oil and natural gas
projects in Canada. One acquisition has given the Company a majority
interest in a full-service oil and gas producing company. The other project
is a joint venture with a major oil and gas company to reclaim one of
Canada's largest natural gas fields. In addition, the Company has entered
into agreements to fund the production of a pipeline for, and then (assuming
satisfactory completion of due diligence) acquire through merger, Teton
Petroleum Company, which has a 70.59% interest in a oil field in the Western
Siberian Basin.
The Company's principal assets consist of both proven and developed
properties, as well as unproven and undeveloped properties. All costs
incidental to the acquisition, exploration, and development of such
properties are capitalized, including costs of drilling and equipping wells
and directly-related overhead costs, which include the costs of
Company-owned equipment. Since the Company has limited proven reserves and
established production, most of its holdings have not been amortized. In
the event that the Company is ultimately unable to establish production or
sufficient reserves on some of these properties to justify the carrying
costs, the value of the assets will need to be written down and the related
costs charged to operations, resulting in additional losses. The Company
periodically evaluates its properties for impairment and if a property is
determined to be impaired, the carrying value of the property is reduced to
its net realizable amount.
Recent Developments
Funding Activities. On or about January 12, 2000, the Company issued
four Convertible Debentures in the aggregate face amount of $3,000,000 to
several individual investors in exchange for an aggregate of $1,591,336 in
cash, conversion of $422,288 in outstanding EuroGas indebtedness, and payments
made by investors on behalf of EuroGas to creditors of EuroGas in the amount
of $986,376. Pursuant to the conversion of the debentures, the Company issued
8,571,429 shares of Common Stock and warrants to purchase 17,142,858 shares of
Common Stock at an exercise price of $0.35 per share. At March 31, 2000,
the Company had approximately $1.4 million in cash and cash equivalents
and a $11.9 million working capital deficit.
Outlook
In the past, the Company has focused its resources on pre-exploration or
early-exploration stage natural gas, coal bed methane gas, and other
hydrocarbon projects with little short-term revenue potential. The Company
believes that its investment in such early-stage projects will prove
profitable in the long-run and may continue to invest in additional
early-stage projects from time to time in the future. Nonetheless, present
management believes that, in order to balance out its holdings, the focus of
the Company's acquisition, investment and development strategy should be on
hydrocarbon projects that have the potential to generate revenues within 1-5
years of the date of investment and is actively seeking such investments.
Results of Operations
The following table sets forth consolidated income statement data and other
selected operating data for the three months ended March 31, 2000 and 1999,
respectively.
For the quarter
Ended March 31
-----------------------
2000 1999
----------- ----------
Revenues
Oil and Gas Sales $ 1,783,805 $ 740,894
Total Revenues 1,783,805 740,894
Operating Expenses
Oil and gas production 656,110 172,144
General and administrative 1,662,996 2,481,064
Depreciation and amortization 415,352 295,717
Total Operating Expenses 2,734,458 2,948,925
Other Income (Expense)
Interest and other income 39,989 69,597
Interest expense (2,782,871) (123, 264)
Foreign currency exchange gains (losses), net 47,046 65,628
Realized loss on sale of securities and equipment (4,407) (82,350)
Other Expense, Net - (70,389)
Minority interest in earnings of subsidiary (300,227) (92,711)
Net Loss (3,951,123) (2,413,348)
Revenues. Prior to 1999, the Company had not
generated any revenues from oil and gas sales.
As a result of the Company's acquisition of the
controlling interest in Big Horn, the Company's
results of operations for the three months ended
March 31, 2000 reflect oil and gas sales of
$1,783,805 and the Company's results of operations
for the three months ended March 31, 1999, reflect
net income of $740,894.
Operating Expenses. Operating expenses primarily include
oil and gas production, general and administrative expenses,
depreciation and amortization, cost of mineral interests and
equipment and impairment of mineral interests and equipment.
Oil and gas production expenses increased from $172,144 during
the three months ended March 1999 to $656,110 for the three
months ended March 31, 2000. Such increase resulted
primarily from an increase in the number and cost of oil
wells drilled by Big Horn. General and administrative expenses
were $1,662,996 for the three months ended March 31, 2000,
compared to $2,481,064 for the three months ended March 31,
1999. Such decrease in administrative expenses is the result
of the Company having incurred a large one-time cost associated
with the leasing of new offices during the first quarter of
1999, and the absence of a corresponding expense during the
first quarter of 2000. Depreciation and amortization expenses
were $415,352 for the three months ended March 31, 2000,
compared to $295,717 for the three months ended March 31,
1999. Such increase resulted primarily from an increase in the
depletion expenses associated with Big Horn's oil reserves.
In addition, during the three months ended March 31, 2000, the
Company incurred an interest expense of $2,782,871, compared to
an interest expense of $123,264 during the three months ended
March 31, 1999. The primary reason for such increase in
interest expense was the beneficial conversion feature
associated with the issuance of $3,000,000 in Convertible
Debentures on January 12, 2000 at a conversion rate that
was less than market value on the date of issuance. When
issuing convertible debt, the Company must recognize an
interest expense in an amount equal to the number of
shares of Common Stock issuable upon conversion multipled
by the difference between the conversion rate and market
value of a share of Common Stock on the date of issuance.
The Company also recognized a loss of $300,227 from a
minority interest in a consolidated subsidiary during
the three months ended March 31, 2000, compared to a loss
of $92,711 during the three months ended March 31, 1999.
The $1,783,805 oil and gas revenue figure and related expense
items on the Company's Statement of
Operations represents 100% of Big Horn's oil and gas revenues.
The $300,227 minority interest loss is included to account
and other related expense items for the interest of the
minority shareholders in Big Horn,
so that the net income figures set forth on the Statement
of Operations reflect only EuroGas' approximately 51%
interest in Big Horn.
Income Taxes. Historically, the Company has not
been required to pay income taxes, due to the
Company's absence of net profits. For future
years, the Company anticipates that it will be
able to utilize a substantial portion of its
accumulated deficit, which was approximately $73.3
million as of March 31, 2000, to offset profits,
if and when achieved, resulting in a reduction in
income taxes payable.
Net Loss. The Company incurred net losses of
$3,951,123 and $2,371,131 for the three months
ended March 31, 2000 and 1999, respectively.
These losses were due in large part to the
absence of revenues, combined with continue
administrative, production, depreciation and
other recurring continuing expenses and a
significant one-time expense associated with the
beneficial conversion feature in the January 12,
2000 Convertible Debentures. The Company did generate
a limited amount of revenue from one of its projects
during the quarter ended March 31, 2000.
Due to the fluctuating economies of the Eastern
European countries in which the Company operates,
the Company is subject to fluctuations in
currency exchange rates that can result in the
recognition of significant gains or losses during
any period. The Company recognized $47,046 and $65,628,
in gains as a result of currency transactions in the
three months ended March 31, 2000 and 1999, respectively.
The Company had a cumulative foreign currency translation
adjustment of $(2,998,796) at March 31, 2000. The Company
does not currently employ any hedging techniques to protect
against the risk of currency fluctuations.
Capital and Liquidity
The Company had an accumulated deficit of $73,302,929
at March 31, 2000, substantially all
of which has been funded out of proceeds received
from the issuance of stock and the incurrence of
payables. At March 31, 2000, the Company had
total current assets of approximately $6.2 million
and total current liabilities of approximately $18
million (which number includes a below-face-value
estimate of the Company's obligation with respect to
the default judgment entered against the Company on
March 16, 2000) resulting in negative working capital
of approximately $11.8 million. As of March 31, 2000,
the Company's balance sheet reflected approximately
$26.8 million in mineral interests in properties
not subject to amortization, net of
valuation allowance. These properties are held
under licenses or concessions that contain specific
drilling or other exploration commitments and that
expire within one to three years, unless the
concession or license authority grants an extension
or a new concession license, of which there can be
no assurance. If the Company is unable to establish
production or resources on these properties, is
unable to obtain any necessary future licenses or
extensions, or is unable to meet its financial
commitments with respect to these properties, it
could be forced to write off the carrying value of
the applicable property.
Throughout its existence, the Company has relied on
cash from financing activities to provide the funds
required for acquisitions and operating activities.
During the three months ended March 31, 2000, the
Company received $1,591,336 in cash from the issuance
of the January 12, 2000 Convertible Debentures but
expended $825,852 of such cash in principal payments
on outstanding notes. As a result, the Company's
financing activities provided net cash of approximately
$765,484 during the three month period ended March 31,
2000, compared to the net cash of $(1,082,004) expended
for financing activities during the three month period
ended March 31, 1999. The $765,484 in net cash received
during the three month period ended March 31, 2000 was
used primarily to fund operaitons.
While the Company had cash of approximately $1.4
million at March 31, 2000, it has substantial
short-term and long-term financial commitments with
respect to exploration and drilling obligations
related to the mineral properties in which it has an
interest, potential litigation liabilities and its
commitments to Teton Petroleum Company under the
Teton Master Agreement. Excluding potential
litigation costs and liabilities, the Company
estimates its financial commitments for the remaining
nine months of 2000 will be approximately $7
million. Many of the Company's projects are
long-term and will require the expenditure of
substantial amounts over a number of years before
the establishment, if ever, of production and
ongoing revenues. As noted above, the Company has
relied principally on cash provided from equity and
debt transactions to meet its cash requirements.
The Company does not have sufficient cash to meet
its short-term or long-term needs and it will
require additional cash, either from financing
transactions or operating activities, to meet its
immediate and long term obligations. There can be
no assurance that the Company will be able to obtain
additional financing, either in the form of debt or
equity, or that, if such financing is obtained, it
will be available to the Company on reasonable
terms. If the Company is able to obtain additional
financing or structure strategic relationships in
order to fund existing or future projects, existing
shareholders will likely continue experience further
dilution of their percentage ownership of the Company.
If the Company is unable to establish production or
reserves sufficient to justify the carrying value of
its assets or to obtain the necessary funding to
meet its short and long-term obligations or to fund
its exploration and development program, all or a
portion of the mineral interests in unproven
properties will be charged to operations, leading to
significant additional losses.
Inflation
The amounts presented in the Company's consolidated
financial statements do not provide for the effect
of inflation on the Company's operations or its
financial position. Amounts shown for property,
plant and equipment and for costs and expenses
reflect historical costs and do not necessarily
represent replacement costs or charges to operations
based on replacement costs. The Company's
operations, together with other sources, are
intended to provide funds to replace property, plant
and equipment as necessary. Net income would be
lower than reported if the effects of inflation were
reflected either by charging operations with amounts
that represent replacement costs or by using other
inflation adjustments. Due to inflationary problems
in Eastern Europe that is seen in currency exchange
losses, the Company has seen losses on its assets
values in those countries.
Factors That May Affect Future Results
This Quarterly Report on Form 10-Q contains certain
forward-looking statements and information relating
to the Company and its business that are based on
the beliefs of management of the Company and
assumptions made based on information currently
available to management. Such statements can be
identified by the use of the words "anticipate,"
"estimate," "project," "likely," "believe,"
"intend," "expect" or similar words. Forward-looking
statements reflect the current views of management
of the Company and are not intended to be accurate
descriptions of the future. When considering such
statements, the reader should bear in mind the
cautionary information set forth in this section and
other cautionary statements throughout this Report
and the Company's Annual Report on Form 10-K and in
the Company's other filings with the Securities and
Exchange Commission. All forward-looking statements
are based on management's existing beliefs about
present and future events outside of management's
control and on assumptions that may prove to be
incorrect. The discussion of the future business
prospects of the Company is subject to a number of
risks and assumptions, including those identified
below. Should one or more of these or other risks
materialize or if the underlying assumptions of
management prove incorrect, actual results of the
Company may vary materially from those anticipated,
estimated, projected or intended. Among the factors
that may affect the Company's results are the
Company's ability to consummate its proposed merger
with Teton Petroleum Company, the Company's ability
to establish beneficial relationships with industry
partners to provide funding and expertise to the
Company's projects, the Company's efforts to locate
commercial deposits of hydrocarbons on the Company's
concessions and licenses, the negotiation of
additional licenses and permits for the exploitation
of any reserves located, the success of the
Company's exploratory activities, the completion of
wells drilled by the Company, its joint venture
partners and other parties allied with the Company's
efforts, the economic recoverability of in-place
reservoirs of hydrocarbons, technical problems in
completing wells and producing gas, the Company's
marketing efforts, the ability of the Company to
obtain the necessary financing to successfully
pursue its business strategy, operating hazards and
uninsured risks, the intense competition and price
volatility associated with the oil and gas industry
and international and domestic economic conditions.
The Company's activities also carry with them
certain risks in addition to the risks normally
associated with the exploration and development of
hydrocarbons. Each of the eastern European countries
in which the Company has obtained or is obtaining
concessions (Poland, Slovakia, Yakutia, and Ukraine)
are in the process of developing capitalistic
economies. As a result, many of their laws,
regulations, and practices with respect to the
exploration and development of hydrocarbons have not
been time tested or yet adopted. The Company's
operations are subject to significant risks that any
change in the government itself, government
personnel, or the development of new policies and
practices may adversely effect the Company's
operations and financial results at some future
date. Furthermore, the Company's concessions and
licenses are often subject, either explicitly or
implicitly, to ongoing review by governmental
ministries. In the event that any of the countries
elects to change its regulatory system, it is
possible that the government might seek to annul or
amend the governing agreements in a manner
unfavorable to the Company or impose additional
taxes or other duties on the activities of the
Company. As a result of the potential for political
risks in these countries, it remains possible that
the governments might seek to nationalize or
otherwise cause the interest of the Company in the
various concessions and licenses to be forfeited.
Many of the areas in which the Company's prospects
are located lack the necessary infrastructure for
transporting, delivering, and marketing the products
which the Company seeks to identify and exploit.
Consequently, even if the Company is able to locate
hydrocarbons in commercial quantities, it may be
required to invest significant amounts in developing
the infrastructure necessary to carry out its
business plan. The Company does not presently have a
source of funding available to meet these costs.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company conducts business in many foreign
currencies. As a result, it is subject to foreign
currency exchange rate risk due to effects that
foreign exchange rate movements of those currencies
have on the Company's costs and on the cash flows
which it receives from its foreign operations. The
Company believes that it currently has no other
material market risk exposure. To date, the Company
has addressed its foreign currency exchange rate
risks principally by maintaining its liquid assets
in U.S. dollars, in interest-bearing accounts, until
payments in foreign currency are required, but does
not reduce this risk by utilizing hedging
activities.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On December 30, 1999, Finance & Credit Development
Corporation Ltd., an Ireland corporation, commenced
an action against EuroGas in a case styled Finance &
Credit Development Corporation Ltd., an Ireland
Corporation vs. EuroGas, Inc., a Utah corporation,
Case No. 2:00VC-1024K. The complaint in such action
alleges that EuroGas breached its contractual
obligation to file with the SEC a registration
statement registering 5,533,333 shares of EuroGas
Common Stock on or about September 15, 1997 and
requests relief in the form of damages in an amount
to be proven at trial (but believed to exceed $10
million), costs and reasonable attorneys fees.
EuroGas did not file an answer or other responsive
motion to such complaint. Accordingly, following
the filing of a Motion for Default Judgment and
supportive papers by the plaintiff, on March 16,
2000, the federal district court issued a default
judgment against EuroGas in the amount of
$19,773,113. Since this judgment was a "default
judgment," it was entered without consideration of
the merits based solely on the Company's failure to
comply with procedural requirements and on
affidavits from the plaintiff setting forth its view
of the amount of its damages. We have engaged
counsel with respect to the matter and directed such
counsel to vigorously pursue all available remedies,
defenses and counterclaims. We filed a motion to
have the default judgment set aside on May 8, 2000,
so that the case may be tried on its merits. No
hearing has yet been scheduled on such motion.
If the case is heard on the merits, we
believe that we may have viable defenses and
potential counterclaims. Nonetheless, we can
provide no assurance that a motion to have the
judgment set aside will be granted or that, if such
motion is granted and the case is tried on the
merits, EuroGas will prevail.
In 1996, KUKUI, Inc. ("KUKUI"), acting separately
and on behalf of the Unsecured Creditors Trust of
the Bankruptcy Estate of McKenzie Methane
Corporation (McKenzie Methane Corporation was an
affiliate of the former owner of Pol-Tex), asserted
certain claims against Pol-Tex and GlobeGas in
connection with lending activities between McKenzie
Methane Corporation and the management of GlobeGas
prior to its acquisition by the Company. The claim
asserted that funds that were loaned to prior
GlobeGas management may have been invested in
GlobeGas and, therefore, McKenzie Methane
Corporation might have had an interest in GlobeGas
at the time of the acquisition of GlobeGas by the
Company. These claims were resolved pursuant to a
settlement agreement entered into in November 1996
(the "KUKUI Settlement Agreement"). Under the terms
of the settlement agreement, the Company issued to
the Bishop's Estate (KUKUI's parent) 100,000 shares
of Common Stock and an option to purchase up to
2,000,000 shares of Common Stock at any time prior
to December 31, 1998. The option exercise price was
$3.50 per share if exercised within 90 days of the
execution of the Company's 1997 agreement with
Texaco (the "Texaco Agreement"); $4.50 per share if
exercised prior to December 31, 1997; and $6.00 per
share if exercised prior to December 31, 1998. The
Company also granted registration rights with
respect to the securities.
In March 1997, a trustee over certain of the
McKenzie parties and other related entities asserted
a claim to the proceeds that the Company would
receive from the Texaco Agreement and exploitation
of the Pol-Tex Concession in an action entitled:
Harven Michael McKenzie, debtor; Timothy Stewart
McKenzie, debtor; Steven Darryl McKenzie, debtor
(case no. 95-48397-H2-7, Chapter 7; case no.
95-48474-H2-7, Chapter 7; and case no.
95-50153-H2-7, Chapter 7, respectively) W. Steve
Smith, trustee, plaintiff v. McKenzie Methane Poland
Co., Francis Wood McKenzie, EuroGas, Inc., GlobeGas,
B.V. and Pol-Tex Methane, Sp. zo.o., defendants
(Adv. No. 97-4114 in the United States Bankruptcy
Court for the Southern District of Texas Houston
Division). The trustee's claim alleges that the
Company paid inadequate consideration for its
acquisition of GlobeGas (which indirectly controlled
the Pol-Tex Concession) from persons who were acting
as nominees for the McKenzie parties or in fact may
be operating as a nominee for the McKenzie parties,
and, therefore, the creditors of the McKenzie
parties are the true owners of the proceeds received
from the development of the Pol-Tex Concession.
(KUKUI is also the principal creditor of the
McKenzie parties in these other cases.) The Company
believes that the litigation is without merit based
on its belief that the prior settlement with KUKUI
bars any such claim, that the trustee over the
McKenzie parties has no jurisdiction to bring such
claim against a Polish corporation (Pol-Tex) and the
ownership of Polish mining rights, that the Company
paid substantial consideration for GlobeGas, and
that there is no evidence that the creditors of the
McKenzie parties invested any money in the Pol-Tex
Concession. In October 1999, the Trustee filed a
Motion for Leave to Amend and Supplement Pleadings
and Join Additional Parties in this action and in
adversary proceeding 97-4155 (described below) in
which he is seeking to add new parties and
additional causes of action including claims for
damages based on fraud, conversion, breach of
fiduciary duties, concealment and perjury. In
January, 2000, such motion was approved by the
bankruptcy court.
In June 1999, the Trustee filed another suit in the
same bankruptcy cases styled "Steve Smith, Trustee,
Plaintiff vs. EuroGas , Inc., Globegas, B.V.,
Pol-Tex Methane, Sp. z.o.o., et al." Adversary
#99-3287. That suit sought sanctions against the
Defendants for actions allegedly taken by the
Defendants during the bankruptcy cases which the
Trustee considered improper. The Defendants filed a
motion to dismiss the lawsuit, which was granted in
August 1999. In July 1999, the Trustee also filed a
suit in the same bankruptcy cases styled "Steve
Smith, Trustee, Plaintiff, vs. EuroGas, Inc.,
Globegas, B.V., Pol-Tex Methane, Sp. z.o.o."
Adversary #99-3444. This suit seeks damages in
excess of $170,000 for the Defendants alleged
violation of an agreement with the Trustee executed
in March 1997, which agreement, in part, allowed the
Texaco Agreement to proceed. EuroGas disputes the
allegations and has filed a motion to dismiss or
alternatively, to abate this suit which motion is
currently pending before the court. Nonetheless, in
order to avoid additional costs associated with
extended litigation, the Company is engaged in
settlement discussions in an attempt to reach a
negotiated resolution of the dispute.
On August 21, 1997, KUKUI asserted a claim against
the Company in an action entitled KUKUI, Inc. v.
EuroGas, Inc., Case No. H-972864 United States
District for the Southern District of Texas, Houston
Division. KUKUI's claim is based upon an alleged
breach of the KUKUI Settlement Agreement as a result
of the Company's failure to file and obtain the
effectiveness of a registration statement for the
resale by KUKUI of 100,000 shares of Common Stock
delivered to KUKUI in connection with the
settlement. In addition, Bishop Estate, KUKUI's
parent, has entered a claim for failure to register
the resale of shares of Common Stock subject to its
option to purchase up to 2,000,000 shares of Common
Stock. The Company has denied any liability and has
filed a counterclaim against KUKUI and Bishop's
Estate for breach of contract. The parties are
engaged in settlement discussions in an attempt to
reach a negotiated resolution of the dispute.
In early December, 1999, EuroGas signed a settlement
agreement with Kukui, the Bishop Estate and the
bankruptcy Trustee in the aforementioned litigation.
That settlement, in part, requires EuroGas to pay
$900,000 over the next 12 months and issue 100,000
shares of registered common stock to the Bishop
Estate by June 30, 2000. Recently, the Trustee
declared that certain conditions precedent set forth
in the settlement agreement have not been met, and
the Trustee does not intend to seek bankruptcy court
approval of the agreement. EuroGas is now
evaluating what effect this has on the agreement.
If the settlement agreement does not resolve the
foregoing litigation, EuroGas intends to vigorously
defend the litigation. Pursuant to the settlement,
EuroGas has made monthly payments to Kukui and has
executed all pleadings required to be submitted to
the United States District Court, District of Utah.
In July 1999, an action was commenced by Randy
Crawford styled "Randy Crawford, PhD. P.E.,
Plaintiff, v. EuroGas, Inc., Danube International
Petroleum company, Ltd., Danube Acquisition Corp.,
and Martin Schuepback, Defendant," in the State
District Court, Dallas, Texas, Cause # DV 9805298.
In this litigation, Crawford asserts that the
Defendants breached a service agreement under which
he was employed to provide consulting and
engineering services and that he is now owed
$159,500 and the right to purchase 284,000 shares of
common stock at the price of $1.50. Mediation is
on-going in an effort to resolve this dispute. The
trial date is set forth June 5, 2000.
On October 11, 1999, an action was filed against
EuroGas entitled "Fred L. Oliver. Petroleum
Ventures of Texas, Inc. R.A. Morse and R.A. Morse,
Trustee, Plaintiffs vs. EuroGas, Inc. and Beaver
River Resources, Ltd., Defendants" in the State
District Court of Dallas County, Texas, Cause
#DV99-08032-A. In this action, Plaintiffs assert
that EuroGas breached an agreement by failing to
seek registration of certain restricted and
unregistered shares issued to Plaintiffs in
connection with EuroGas' acquisition of its interest
in Beaver River Resources, Ltd. The action seeks
rescission of the agreement, or in the alternative,
damages, and includes claims for costs, attorneys
fees and interest. EuroGas has filed an answer
denying the allegations contained in the lawsuit.
This motion is currently set for trial on July 31,
2000.
On or about November 1, 1999, a settlement was
reached with Stephen Jeu and Susanna Calvo resolving
their claims in a suit filed in the District Court,
Harris County, Texas, 55th Judicial District.
EuroGas has not fully performed the terms of the
settlement agreement and is seeking to amend the
settlement. If the amendment is not obtained, an
Agreed Judgment for $550,000 may be presented by the
plaintiffs for entry by the district court.
For the 1992 year, the Kingdom of the Netherlands
assessed a tax against GlobeGas, a subsidiary of the
Company, in the amount of approximately $911,000
even though it had significant operating losses.
The amount fluctuates on the financial statements of
the Company due to adjustments in exchange ratios.
At March 31, 2000, the income tax liability recorded
in the Company's financial statements was
$653,385. The Company has appealed the assessment
and has proposed a settlement which would result in
a reduction in the tax to $42,000. Pending final
resolution, a liability for the total amount
assessed will continue to be reflected in the
Company's financial statements.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
On or about January 12, 2000, EuroGas issued four
Convertible Debentures in the aggregate face amount
of $1,591,336 in cash, conversion of $422,288 in
outstanding EuroGas indebtedness and payments made by
investors on behalf of EuroGas to creditors of EuroGas
in the amount of $986,376. The Convertible
Debentures accrue interest at the rate of prime plus
two percent (currently 10.2%) per annum. Payment
of the principal amount of the Convertible
Debentures is due on February 10, 2001, and accrued
interest is payable annually beginning on January 8,
2001. Each Convertible Debenture is convertible
into (a) shares of Common Stock at the rate of one
share per $0.35 indebtedness (for a total of
2,857,143 shares per $1,000,000 of Convertible
Debenture), and (b) warrants to purchase one share
Common Stock at the rate of two warrants for each
$0.35 in indebtedness (for a total of 5,714,286
warrants per $1,000,000 of Convertible Debenture).
Each such warrant entitles the holder to purchase
one share of Common Stock for an exercise price of
$0.35 at any time on or before March 31, 2000.
The private placement of the Convertible Debentures
was effected in reliance upon the exemption for
sales of securities not involving a public offering,
as set forth in Section 4(2) of the Securities Act
of 1933, as amended, based upon the following based
upon the following: (a) the investors confirmed to
the Company that they were "accredited investors,"
as defined in Rule 501 of Regulation D promulgated
under the Securities Act and had such background,
education, and experience in financial and business
matters as to be able to evaluate the merits and
risks of an investment in the securities; (b) there
was no public offering or general solicitation with
respect to the offering; (c) the investors were
provided with any and all other information
requested by the investors with respect to the
Company, (d) the investors acknowledged that all
securities being purchased were "restricted
securities" for purposes of the Securities Act, and
agreed to transfer such securities only in a
transaction registered with the SEC under the
Securities Act or exempt from registration under
the Securities Act; and (e) a legend was placed on
the Convertible Debentures and other documents
representing each such security stating that it was
restricted and could only be transferred if
subsequently registered under the Securities Act or
transferred in a transaction exempt from
registration under the Securities Act.
As of March 31, 2000, the holders of all four
Convertible Debentures exercised their rights to
convert the Convertible Debentures to Common Stock.
Pursuant to the conversion of the debentures, the
Company issued 8,571,428 shares of Common Stock and
warrants to purchase 17,142,858 shares of Common
Stock at an exercise price of $0.35 per share.
During January 2000, all 1,800 outstanding shares of
Series C Convertible Preferred Stock were converted
into 5,329,713 shares of Common Stock. In connection
with such conversion, 63,261 shares of Common Stock
were issued for accrued dividends of $21,599.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - See Exhibit Index following
the signature page.
(b) Reports on Form 8-K - none.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
EUROGAS, INC.
Dated: May 14, 2000 By /s/ Karl Arleth
--------------------------------
(Karl Arleth, President and
Temporary Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number Title of Document Location
3.1 Articles of Incorporation Registration Statement
on Form S-18, File
No. 33-1381-D*
3.2 Amended Bylaws Annual Report on
Form 10-K for the fiscal
year ended September 30,
1990*
3.3 Designation of Rights, Privileges, Quarterly Report
and Preferences of 1995 Series on Form 10-QSB dated
Preferred Stock March 31, 1995*
3.4 Designation of Rights, Privileges, Report on Form 8-K
and Preferences of 1996 Series dated July 12, 1996*
Preferred Stock
3.5 Designation of Rights, Privileges, Report on Form 8-K
and Preferences 1997 Series A dated May 30, 1997*
Convertible Preferred Stock
3.6 Designation of Rights, Privileges, Registration Statement
and Preferences of 1998 Series B on Form S-1 dated
Convertible Preferred Stock July 23, 1998*
3.7 Articles of Share Exchange Report on Form 8-K
dated August 3, 1994*
3.8 Designation of Rights, Privileges, Registration Statement
and Preferences of 1999 Series C on Form S-1,
6% Convertible Preferred Stock File No. 333-92009, filed
on December 2, 1999*
4.1 Form of Convertible Debenture Annual Report on Form
issued on January 12, 2000. 10-K for the fiscal year
ended December 31, 1999.*
4.2 Form of Series 2000A Warrant Filed herewith
27.1 Financial Data Schedule Filed herewith.
*Incorporated by reference
</TABLE>
EXHIBIT 4.2
FORM OF SERIES 2000A WARRANT
THESE SECURITIES, AND ANY SECURITIES ISSUABLE UPON THE EXERCISE OR
CONVERSION OF THESE SECURITIES, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, IS IN EFFECT WITH RESPECT TO SUCH SECURITIES OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY PROVIDING THAT (I) AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, IS
AVAILABLE, OR (II) THE RESALE PROVISIONS OF REGULATION S PROMULGATED
UNDER THE SECURITIES ACT OF 1993, AS AMENDED, HAVE BEEN SATISFIED.
HEDGING TRANSACTIONS INVOLVING THESE SECURITIES ARE PROHIBITED EXCEPT
IN COMPLIANCE WITH THE SECURITIES ACT OF 1993, AS AMENDED.
EUROGAS, INC.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
**Series 2000-A Warrants Warrant
Certificate No. 2000A-**
Void after 5:00 p.m., Mountain Standard Time
on March 31, 2001 or on such earlier date specified herein
__________________________
This certifies that, for value received, ** ("HOLDER") is entitled,
subject to the provisions of this Warrant, to purchase the number of shares
of common stock, par value $.001 per share (the "COMMON STOCK"), of EuroGas,
Inc., a Utah corporation (the "COMPANY") specified above, at a price of
Thirty-five cents ($.35) per share (the "EXERCISE PRICE") at any time up to
5:00 p.m. (Mountain Standard time) on or before March 31, 2001 (the
"EXPIRATION TIME"). The number of shares of Common Stock to be received
upon the exercise of this Warrant (the "WARRANT SHARES") and the Exercise
Price may be adjusted from time to time as hereinafter set forth.
1. Exercise of Warrant. Subject to the limitations set forth below in
this Section, this Warrant may be exercised in whole or in part at any time
or from time to time on or after the date hereof, but in any event no later
than the Expiration Time, or if such time is on a day on which federal or
state-chartered banking institutions in Utah are authorized by law to close,
then on the next succeeding day which shall not be such a day, by
presentation and surrender thereof (with the Notice of Exercise form
attached hereto as Exhibit A duly executed) to the Company at its principal
office or at the office of its stock transfer agent, if any, accompanied by
payment, in cash or by certified or official bank check, payable to the
order of the Company, in the amount of the Exercise Price for the number of
Warrant Shares specified in such form, together with all taxes applicable
upon such exercise. If this Warrant should be exercised in part only, the
Company shall, upon the surrender of this Warrant for cancellation, execute
and deliver a new Warrant of the same tenor evidencing the right of the
Holder to purchase the balance of the Warrant Shares purchasable hereunder
upon the same terms and conditions as herein set forth.
2. Stock Fully Paid; Reservation of Shares. All Warrant Shares that may
be issued upon the exercise of this Warrant shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof. The Company
hereby covenants and agrees that at all times during the period this Warrant
is exercisable it shall reserve from its authorized and unissued Common
Stock for issuance and delivery upon exercise of this Warrant such number of
shares of its Common Stock as shall be required for issuance and delivery
upon exercise of this Warrant. The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the exercise of this Warrant.
3. Fractional Shares. No fractional shares or stock representing
fractional shares shall be issued upon the exercise of this Warrant. In
lieu of any fractional shares which would otherwise be issuable, the Company
shall, in its sole discretion, either (i) pay cash equal to the product of
such fraction multiplied by the fair market value of one share of Common
Stock on the date of exercise, as determined in good faith by the Company's
Board of Directors or (ii) issue the next largest whole number of Warrant
Shares.
4. Disposition of Warrant; Compliance with Securities Act;
Disposition of Warrant Shares.
(a) The Holder, by acceptance hereof, agrees that the Warrant and
Warrant Shares to be issued upon exercise hereof are being acquired for
investment and that the Holder will not offer, sell or otherwise dispose of
such Warrant or Warrant Shares except under circumstances which will not result
in a violation of the Securities Act of 1933, as amended, and the Rules and
Regulations promulgated thereunder (said Securities Act and such Rules and
Regulations being hereinafter collectively referred to as the "SECURITIES
ACT") and any applicable state securities laws. The Warrant Shares shall be
stamped or imprinted with a legend in substantially the following form,
unless counsel to the Company is of the opinion as to any certificate
representing Warrant Shares that such legend is unnecessary:
THESE SECURITIES, AND ANY SECURITIES ISSUABLE UPON THE EXERCISE OR
CONVERSION OF THESE SECURITIES, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, IS IN EFFECT WITH RESPECT TO SUCH SECURITIES OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY PROVIDING THAT (I) AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, IS
AVAILABLE, OR (II) THE RESALE PROVISIONS OF REGULATION S PROMULGATED
UNDER THE SECURITIES ACT OF 1993, AS AMENDED, HAVE BEEN SATISFIED.
HEDGING TRANSACTIONS INVOLVING THESE SECURITIES ARE PROHIBITED EXCEPT
IN COMPLIANCE WITH THE SECURITIES ACT OF 1993, AS AMENDED.
(b) With respect to any offer, sale or other disposition of this
Warrant or the Warrant Shares acquired pursuant to the exercise of this Warrant
prior to registration thereof, the Holder agrees to give written notice thereof
to the Company prior thereto, together with a written opinion of Holder's
counsel, if reasonably requested by the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Securities Act as then in effect or any federal or
state law then in effect) of such Warrant or Warrant Shares and indicating
whether or not under the Securities Act certificates for such Warrant or
Warrant Shares to be sold or otherwise disposed of require any restrictive
legend as to applicable restrictions on transferability in order to ensure
compliance with the Securities Act. Each Warrant or certificate
representing Warrant Shares thus transferred (except a transfer pursuant to
Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act
unless, in the aforesaid opinion of counsel for the Holder or in the opinion
of counsel for the Company, such legend is not required in order to insure
compliance with the Securities Act.
(c) The Company agrees not to register any purported transfer of this
Warrant, the Warrant Shares or any shares of Common Stock of the Company
issued in connection with the Convertible Debentures (as hereinafter
defined) unless such transfer is pursuant to an effective registration under
the Securities Act, consistent with the restrictions of Regulation S
promulgated under the Securities Act, or pursuant to an exemption from
registration under the Securities Act. The Company may issue stop transfer
instructions to its transfer agent in connection with any restrictions set
forth in this Warrant. The Holder shall indemnify and hold harmless the
Company, its directors and officers, and each person, if any, who controls
the Company, against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director, officer or any such
person may become subject under the Securities Act or any statute or common
law, insofar as such losses, claims, damages or liabilities, or actions in
respect thereof, arise out of or are based upon the disposition by such
Holder of the Warrant, the Warrant Shares or other such securities in
violation of the terms of this Warrant.
5. Lost Warrants or Stock Certificates. The Company covenants to the
Holder that upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction, or mutilation of this Warrant or any stock
certificate issued for Warrant Shares upon exercise hereof and, in the case
of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company shall make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
6. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or
equity, and the rights of the Holder by virtue hereof are limited to those
expressed in this Warrant and are not enforceable against the Company except
to the extent set forth herein.
7. Adjustment of Exercise Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Warrant and the Exercise
Price of such securities shall be subject to adjustment from time to time
upon the happening of certain events as follows:
(a) Adjustment for Change in Capital Stock. In case the Company shall
(i) pay a dividend on the Common Stock in shares of Common Stock or make a
distribution of shares of Common Stock, (ii) subdivide its outstanding
shares of Common Stock, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock or (iv) issue, by
reclassification of its shares of Common Stock, other securities of the
Company (including any such reclassification in connection with a
consolidation or merger in which the Company is the surviving corporation),
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder of this
Warrant shall be entitled to receive the kind and number of Warrant Shares
or other securities of the Company which it would have owned or have been
entitled to receive after the happening of any of the events described above
had this Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. If the Holder is entitled to
receive shares of two or more classes of capital stock of the Company
pursuant to the foregoing upon exercise of the Warrant, the Company shall
determine the allocation of the adjusted Exercise Price between the classes
of capital stock. After such allocation, the exercise privilege and the
Exercise Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event retroactive to
the record date, if any, for such event. Such adjustment shall be made
successively whenever such a payment, subdivision, combination or
reclassification is made.
(b) Merger/Consolidation. In case of any consolidation of the Company
with, or merger of the Company into, any other corporation, or in case of
any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then, as a condition of such consolidation, merger or sale or
conveyance, adequate provision shall be made whereby the Holder shall
thereafter have the right to purchase and receive, upon the basis and upon
the terms and conditions specified in this Warrant and in lieu of shares of
Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock or
securities as may be issued in connection with such consolidation, merger or
sale or conveyance, with respect to or in exchange for the number of
outstanding shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby had such consolidation, merger or sale or
conveyance not taken place, and in any such case appropriate provision shall
be made with respect to the rights and interests of the Holder to the end
that the provisions hereof shall be applicable as nearly as may be possible
to any shares of stock or securities thereafter deliverable upon the
exercise hereof. If, pursuant to the terms of any such consolidation,
merger or sale or conveyance, any cash, shares of stock or other securities
or property of any nature whatsoever (including warrants or other
subscription or purchase rights) are to be received by or distributed to the
holders of the Common Stock, in addition to shares of stock or other
securities of the successor entity, there shall be a reduction of the
Exercise Price per Warrant Share equal to the amount applicable to the
number of shares of Common Stock of any such cash and of the fair value (as
determined in good faith by the Board of Directors of the Company) of any
and all such shares of stock or other securities or property to be received
by or distributed to the holders of the Common Stock of the Company.
(c) Adjustment in Exercise Price. Whenever the number of Warrant
Shares purchasable upon the exercise of each Warrant is adjusted as provided in
this Section, the Exercise Price payable upon exercise of each Warrant shall
be adjusted by multiplying such Exercise Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of
Warrant Shares purchasable upon the exercise of each Warrant immediately
prior to such adjustment, and of which the denominator shall be the number
of Warrant Shares purchasable immediately thereafter.
8. Registration Rights. The Company shall be under no obligation to
register this Warrant or the Warrant shares under the Securities Act or any
other securities law.
9. Modification; Waiver; Conflicts with Debentures. This Warrant and any
provision hereof may be modified, amended, waived or discharged only by an
instrument in writing signed by the party against which enforcement of the
same is sought. This Warrant is being executed by the Holder in order to
clarify ambiguities in the Convertible Debentures dated January 12, 2000
(the "Convertible Debentures") with respect to which this Warrant relates.
The Company and Holder agree that the number of warrants Holder was entitled
to receive per $.35 in principal amount upon conversion of the Convertible
Debentures is two warrants, each entitling the Holder to purchase one share
of EuroGas common stock at the price of $.35 per share for a period of one
year from the date of conversion of the respective Convertible Debenture.
In the event of any conflict between this Warrant and the Convertible
Debentures, this Warrant shall prevail.
10. Notice. All notices, requests and other communications to the
Company or Holder hereunder shall be in writing (including telecopy or similar
electronic transmissions), shall refer specifically to this Warrant and
shall be personally delivered or sent by telecopy or other electronic
facsimile transmission or by registered mail, or certified mail, return
receipt requested, postage prepaid, in each case to the respective address
specified below, or such other address or telecopy number as the Company or
Holder may hereafter specify by notice to the other party hereto:
if to the Company:
EuroGas, Inc.
942 East 7145 South
Suite 101A
Midvale, Utah 84047
Attn: Principal Financial Officer
if to Holder: At such address as the Holder shall designate by
written notice to the Company.
11. Construction. The descriptive headings of the several paragraphs of
this Warrant are inserted for convenience only and do not constitute a part
of this Warrant. Unless otherwise indicated, references to Sections shall
be construed as references to the corresponding Sections of this Warrant.
12. Applicable Law; Jurisdiction. This Warrant and the transactions
contemplated hereby shall be governed by, and construed in accordance with,
the laws of the State of Utah (without giving effect to principles relating
to conflicts of laws).
<PAGE>
IN WITNESS WHEREOF, the Company and Holder have executed this Warrant
effective as of the 8th day of May, 2000.
EUROGAS, INC., a Utah corporation
By:__________________________________
Karl Arleth, President
Accepted and Agreed:
Holder
_______________________________
(sign)
________________________________
(print name)
EXHIBIT A
TO
SERIES 2000-A WARRANTS
NOTICE OF EXERCISE
To: EUROGAS, INC. (the "Company"):
1. The undersigned holder of the attached Warrant hereby elects to
purchase __________ shares (the "Warrant Shares") of Common Stock of the
Company pursuant to the terms of the Warrant, and tenders herewith payment
of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing the Warrant
Shares in the name of the undersigned.
3. The undersigned represents that the Warrant Shares being acquired for
the account of the undersigned are for investment and not with a view to, or
for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling the
Warrant Shares.
_______________
(Date)
___________________________
(Signature)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 2000, AND STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,427,564
<SECURITIES> 317,084
<RECEIVABLES> 1,556,769
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,215,526
<PP&E> 49,503,465
<DEPRECIATION> 2,456,521
<TOTAL-ASSETS> 54,481,074
<CURRENT-LIABILITIES> 18,067,174
<BONDS> 0
0
2,392
<COMMON> 100,737
<OTHER-SE> 32,216,951
<TOTAL-LIABILITY-AND-EQUITY> 54,481,074
<SALES> 1,783,805
<TOTAL-REVENUES> 1,783,805
<CGS> 656,110
<TOTAL-COSTS> 656,110
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,782,871
<INCOME-PRETAX> (3,951,123)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,951,123)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,951,123)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
